At UK£1.81, Is ITM Power Plc (LON:ITM) Worth Looking At Closely?

While ITM Power Plc (LON:ITM) might not be the most widely known stock at the moment, it received a lot of attention from a substantial price movement on the AIM over the last few months, increasing to UK£3.79 at one point, and dropping to the lows of UK£1.73. Some share price movements can give investors a better opportunity to enter into the stock, and potentially buy at a lower price. A question to answer is whether ITM Power's current trading price of UK£1.81 reflective of the actual value of the small-cap? Or is it currently undervalued, providing us with the opportunity to buy? Let’s take a look at ITM Power’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.

Check out our latest analysis for ITM Power

What is ITM Power worth?

According to my valuation model, ITM Power seems to be fairly priced at around 19.41% above my intrinsic value, which means if you buy ITM Power today, you’d be paying a relatively fair price for it. And if you believe the company’s true value is £1.52, there’s only an insignificant downside when the price falls to its real value. Is there another opportunity to buy low in the future? Since ITM Power’s share price is quite volatile, we could potentially see it sink lower (or rise higher) in the future, giving us another chance to buy. This is based on its high beta, which is a good indicator for how much the stock moves relative to the rest of the market.

What kind of growth will ITM Power generate?

Future outlook is an important aspect when you’re looking at buying a stock, especially if you are an investor looking for growth in your portfolio. Buying a great company with a robust outlook at a cheap price is always a good investment, so let’s also take a look at the company's future expectations. However, with a negative profit growth of -4.9% expected over the next couple of years, near-term growth certainly doesn’t appear to be a driver for a buy decision for ITM Power. This certainty tips the risk-return scale towards higher risk.

What this means for you:

Are you a shareholder? Currently, ITM appears to be trading around its fair value, but given the uncertainty from negative returns in the future, this could be the right time to reduce the risk in your portfolio. Is your current exposure to the stock beneficial for your total portfolio? And is the opportunity cost of holding a negative-outlook stock too high? Before you make a decision on the stock, take a look at whether its fundamentals have changed.

Are you a potential investor? If you’ve been keeping an eye on ITM for a while, now may not be the most advantageous time to buy, given it is trading around its fair value. The stock appears to be trading at fair value, which means there’s less benefit from mispricing. In addition to this, the negative growth outlook increases the risk of holding the stock. However, there are also other important factors we haven’t considered today, which can help crystalize your views on ITM should the price fluctuate below its true value.

So if you'd like to dive deeper into this stock, it's crucial to consider any risks it's facing. For example - ITM Power has 3 warning signs we think you should be aware of.

If you are no longer interested in ITM Power, you can use our free platform to see our list of over 50 other stocks with a high growth potential.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.